New home sales plunge

By Brian Wargo / Staff Writer

February's new-home closings fell to their lowest point this decade as prices tumbled 5 percent from January, but the Las Vegas housing industry had a bit of a silver lining as housing starts reached their highest level since August, according to SalesTraq.

There were 1,441 new-home closings in February, a drop of nearly 50 percent from February 2006 and a decline of 30 percent from January's 2,052, according to SalesTraq, which compiles housing statistics. That's the lowest monthly total this decade.

In the resale market, the 2,594 homes sold in February was the lowest total since April 2001.

"I think it's always disappointing to see dismal results, and let's face it, those sales figures are disappointing," said Las Vegas housing analyst Steve Bottfeld, executive vice president of Marketing Solutions. "I would say they are disappointing numbers because the market is showing signs of recovery."

Bottfeld noted that home closing figures are a look at the past because it can take 60 to 180 days to close. He added that cold weather in December and January may have kept many people from looking.

Traffic through model homes has been stable since February, according to Las Vegas housing analyst Dennis Smith, the president of Home Builders Research. But it's still off 26.5 percent from the first two months of 2006.

None of the new numbers reflect the recent events in the subprime lending market in which it's tougher for people with lower credit scores to obtain mortgages. In addition, for the second consecutive month, Nevada ranked No. 1 in the country in the number of cases entering some stage of foreclosure. That should bring even more homes onto the market, but Smith said it won't pose a problem.

"I believe that investor demand for owning property in Las Vegas and pent-up consumer demand will absorb the homes going through foreclosure in a relatively short period of time," Smith said. "Consumers will buy foreclosed homes if they perceive a steal or deal."

With the decline in home sales, prices came down in February with the median price at $321,555, a drop of 5 percent from January's price of $339,253. The new-home price is the lowest since March 2006 when it was nearly $320,000.

When mid-rise, high-rise and condo conversions are removed from the equation, the statistics show prices for new single-family homes and condos have dropped 3.4 percent over February 2006 to $331,088, SalesTraq reported.

The home prices don't include the incentives that some builders are offering and have yet to disappear. Meritage Homes recently had a 48-hour weekend sale in which it was offering $60,000 in incentives for homes in Mountain's Edge.

"Homebuilders have attacked the inventory of unsold new homes," Smith said. "The selling incentives they have offered have been working. That is the difference with the resale (market). Homeowners are not prepared to slash the bottom line to whatever it takes to sell their home. That is why it will take so much longer to bring the inventory of active listings down to a more normal market level."

The bright spot in the new-home market: Builders are taking out more permits than they were at the end of 2006. There were 1,005 permits issued in February. Although that's 61 percent lower than the 2,548 permits issued in February 2006, it is the highest total since 1,764 permits were issued in August.

Some of that increase may be attributed to the recent opening of the Inspirada master-planned community in Henderson.

Although Bottfeld described some of the numbers as dismal, he said there's some favorable signs for the valley's housing market.

The median price of new homes is 3 percent higher than it was in February 2005 and the price of existing homes at $284,000 in February was 1.4 percent higher than a year ago, Bottfeld said. The number of existing homes for sale dipped 230 units from January and the number of new-home sales are double the number of new-home permits, he said.

"The next month or two will tell the tale of 2007, whether or not this is a real or false bottom," Bottfeld said.

With about a one-month supply of new homes and the demand for new homes outpacing supply over the last six months by more than 9,000, that should begin to cut in the resale inventory, Bottfeld said.

Smith remains optimistic about the long-term prospects for the housing market and suggested prices will go higher despite the slump, he said.

The key is the job growth, especially with states like Michigan losing manufacturing jobs and people looking to relocate to places like Las Vegas, Smith said.

"It's that simple," Smith said. "As long as we can show job growth, people from other parts will seek those jobs, and require housing. Our housing market has a much better outlook than most others around the country."

Subprime lending woes also a burden for builders

By Brian Wargo / Staff Writer

As if homebuilders didn't have enough to worry about with the slowdown in the housing market, national housing analyst John Burns, who also tracks the Las Vegas market, said builders shouldn't downplay the risk to their businesses from the troubled market for subprime mortgage loans. That will be especially true for builders in outlying areas, he said.

Federal bank regulators this month have called on lenders to use caution when making the loans by basing decisions on borrower's ability to repay loans at the full and final rate instead of a lower teaser rate.

The reasons behind the problems are flat home prices and rising adjustable rates, which are impacting those who bought in the last 24 months, Burns said. The subprime loans tend to reset after two years versus three for other loans and those borrowers are more likely to default, he said.

"The primary housing market will have significantly more stress 12 months from now than it has today unless mortgage rates fall dramatically or home price appreciation returns," Burns said of the nation's housing market.

An adjustable-rate loan made in early 2005 will result in a 30 percent increase in a borrower's mortgage payment, and the value of their home may have declined since they bought it, Burns said.

When he spoke at a housing conference last month in Las Vegas, Burns said he expected sales in the Las Vegas new-home market to stabilize by the end of 2007, essentially starting its recovery. But he said builders in satellite communities in Southern Nevada and Northern Arizona are affected more by the market's housing slowdown than subdivisions closer to the metropolitan area.

The problems in the subprime lending market make it more difficult for builders to sell homes to those with marginal credit histories, Burns said.

"The builders who are getting hurt the most today are the ones who are primarily selling entry-level homes on the outskirts of metropolitan areas,'' Burns said.

Mortgage industry view: Steve Schauer, president of National Lenders Service, a local mortgage broker, said that what's happening with subprime loans, however, can be good for the real estate industry in the long term.

There's quite a shake-up in the mortgage industry with several major companies closing nationwide and others tightening up their guidelines for mortgage loans. The problems for those lenders are the one-time buyers of risky loans on Wall Street are no longer purchasing them on the secondary market, Schauer said.

There's going to be problems when people who had low credit scores of below 600 and didn't have income verified were getting 100 percent loans with adjustable rate mortgages, he said. Those are people who shouldn't have been allowed to get a loan until they saved money, fixed their credit, or gotten better jobs, he said.

"They (the industry) knew they were going to have potential problems down the road, but nobody thought the market would change as quickly as it did," Schauer said.

Today, buyers with good credit and the income to support their mortgage payments won't have any problems getting loans, Schauer said. That's akin to the way it was five to six years ago.

People need credit scores of at least 640 to get financing, he said.

That easy accessibility to money helped fuel the boom in housing, which in turn led to a sharp jump in prices that has made housing unaffordable to many today, Schauer said. With fewer people able to get loans now, that should lessen demand and keep prices stable or lower them, he said.

Las Vegas economic index and housing:An index of leading economic indicators was flat in December as it was for most of 2006, according to the Center for Business and Economic Research at UNLV. Six of ten indicators for December were up over November but six of 10 indicators were down from December 2005.

The mix in the data shows no sign of recession, but it shows weakness, the report said. It is "highly likely" that the index will continue along its recent track through 2007 because of weakness in the residential housing sector, the report said.

The strength in travel and tourism has made up for the decline in residential construction, the report said. Construction employment recovered in December after dips in October and November.

National association of Realtors forecast: Pending sales of existing homes declined in January, with the NAR's index down 4 percent from December and 9 percent from January 2006. Despite the drop, the index has recovered from a low in October, said David Lereah, the NAR's chief economist. Poor weather hurt the index in January but he maintains there is an underlying pattern of stabilization. The index is derived from the pending sales of existing homes with transactions yet to be closed. The index in the West rose 0.2 percent in January over December, but that is 7 percent below January 2006.

An index for the commercial real estate market has increased for seven consecutive quarters and is holding at its highest level on record. Lereah said the growth in the commercial real estate sector, however, appears to be reaching a plateau.

In other news:

# According to the Web site of Chicago real estate firm Berg Properties, actor Nicolas Cage has increased his real estate holdings in Las Vegas by paying $8.5 million for a 14,306-square-foot, custom-designed mansion in the Spanish Hills Estates subdivision, where he'd already paid $2.25 million for a five-bedroom house. The mansion has an elevator, game room, workout room, three fireplaces, gourmet kitchen, and 16-car garage. The mansion built in 2003 had been listed for $9.95 million, the Web site reported. It said it wasn't clear if Cage bought the two properties for an investment, his family or himself, it said.

# Commerce CRG in Las Vegas and Phoenix-based Southwest Apartment Group of Cushman & Wakefield have announced a joint venture to service the Las Vegas apartment investment community. The venture, managed by Gary Cuff, formerly with NAI Horizon, provides information to apartment investors.

# Commerce CRG, which opened in Las Vegas in April 2006, has moved to a new location at 3800 Howard Hughes Parkway, Suite 1200. The new office is almost three times the size of its previous space in the Hughes Center.

# Anthem Highlands Shopping Center held its grand opening on March 10 with a 1950s classic-car themed event. The 124,000 square-foot shopping center is anchored by Albertsons and CVS Pharmacy. It is a project of Regency Centers.